Set forth below is the text of a comment that I put to a blog entry a the Mint.com site titled Timing the Market Using Stock Valuations:
I’m responding to the comment by Value RIch. He asks about my relationship with Michael Kitces and comments (with at least a small measure of sarcasm, I suspect) that I “must be quite the study to have bested all the leading figures into a whole new investing movement.”
Here’s a link to the home page of my blog:
The “People are Talking” section (it runs down the left side of the page) contains favorable comments on my work by a combination of 110 experts and ordinary investors. There are comments there by both Michael Kitces and Wade Pfau. And the comments by Michael go back a number of years. I’ve had a relationship with Michael for a long time now. Yes, my work has had a huge influence on his (and Michael’s work has of course in turn had a huge influence on mine).
I of course agree that it is exceedingly strange that I have been able to create “a whole new investing movement.” The full reality is that we are dealing with exceedingly strange circumstances in the investing realm today.
Buy-and-Hold is rooted in the research by Eugene Fama that produced the Efficient Market Hypothesis. Please note that an “hypothesis” is not a fact or a truth, it is really just an informed guess. The thing to do with an hypothesis is to test it. That’s what Yale Economics Professor Robert Shiller did with his 1981 research showing that valuations affect long-term returns. That research discredited the Efficient Market Hypothesis and Buy-and-Hold and showed us the path to something far better. It is really Shiller who is the founder of the movement being discussed here.
If humans were perfect creatures, Buy-and-Hold would have been abandoned on the day Shiller published his research. That didn’t happen. Lots of money had already been spent promoting Buy-and-Hold and people didn’t want to acknowledge the mistakes. Lots of people had already invested their reputations in the promotion of Buy-and-Hold. Lots of people did not immediately grasp the significance of Shiller’s findings. For all sorts of reasons, Buy-and-Hold remained and actually grew more popular during the huge bull market that came in the following years.
The academic research discredited Buy-and-Hold thirty years ago. But the vast majority of the experts in this field hold back from saying things so clearly because it is career suicide to do so. I am a journalist, not a financial planner. So I have for 10 years now been saying things far more clearly than just about anyone else writing about these matters. To that extent it is indeed fair to say that I have started “a whole new investing movement.”
I have great respect and admiration for the Buy-and-Holders. There wouldn’t be any Valuation-Informed Indexing today if not for their many important and powerful and grounds-breaking contributions. But the reality is that Buy-and-Hold died 30 years ago. Shiller himself has said in interviews that he has never told us all he knows about stock investing because he fears that he would be branded as “unprofessional” if he did so. That amazing reality should give you some idea of what we are up against. We all lose when we become unable to hear the sincere insights of the most important figures in this field.
My job is to get the word out about all the wonderful things we have learned intellectually but have held back from discussing publicly for fear that it would hurt the feelings of the Buy-and-Holders for people to learn about their mistakes. We need to be hearing all that Shiller has to teach us and all that Kitces has to teach us and all that Pfau has to teach us and of course also all that people like Bogle and Bernstein and Swedroe and other Buy-and-Holders have to teach us too.
We really are on the threshold of the greatest expansion of our knowledge of how stock investing works ever achieved. It’s a shame that we have let things remain stagnant in this field for 30 years. But the happy side of the story is that we are now in a place where we can enjoy hundreds of powerful insights that have been developed over the course of many years but not shared publicly because for a time it was not politically correct to point out that the Buy-and-Hold model has failed (while laying the groundwork for something better).
I didn’t “best” all the great minds in this field. I learned from them. ALL of them. I have learned many wonderful things from the Buy-and-Holders. I have also learned many wonderful things from the many smart and good people who have done research showing that the Buy-and-Holders did not know all there was to know when they put forward the First Draft of an investing approach rooted in the academic research. My job today is to get everybody talking to each other and learning from each other so that we all begin reaping the benefits of the amazing stuff we have been learning about underground for 30 years now.
Perhaps the best way to say it is to say that the humans worked together to bring about “a whole new investing movement.” I’ve said a lot of things that few or no others have been willing to say clearly. But I ain’t some guy who has been sitting in a room alone thinking grand thoughts. I have had help from hundreds of experts in the field and from thousands of ordinary middle-class investors. There’s plenty of credit to go around here. We all need to get to a point where we start worrying less about who gets credit for the breakthough insights and more about how we get the word out to the millions of middle-class people who need to be hearing about all these insights.
Again, thanks for getting this discussion started, Matthew. It’s hugely important stuff.